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Should a Monopolist Have to Charge Money to be Subjected to a Nondiscrimination Requirement?

In a prior post, I explored the question whether private monopolists, such as Facebook, Twitter, and Google should be subject to a nondiscrimination requirement.  I argued that a strong case could be made (assuming they were monopolists) for the legitimacy of subjecting them to such a requirement on the ground that they can exercise coercion.

One objection to applying such a nondiscrimination to Facebook, Twitter, and Google is that many of these services do not charge the consumer.  Since the traditional limitations on common carriers, such as railroads and inns, involved entities that charged, the argument concludes that the nondiscrimination requirement should not apply to these new companies.

But it is not clear why the fact that these sellers do not charge should exempt them from the nondiscrimination requirement.  One possibility is that if someone does not charge, they do not owe an obligation to the consumer.  But this premise is not really true.  When one watched old broadcast TV with an antenna, one was not charged.  Instead, one gave up one’s time by watching the commercials.  There was something of a quid pro quo, even though one was not charged.  Similarly, when one uses Facebook or Google, your use helps them sell advertising.  Thus, with both TV and Facebook, there is something of an exchange.

But even if one did not incur some cost to receive the service, that should not really eliminate the obligation for the seller not to discriminate.  Why should the fact that the seller is providing something for free (but for their own benefit) exempt them from the nondiscrimination requirement?  It is true that the consumer appears to be accepting the benefit voluntarily.  But a monopolist that charges is also providing something that the consumer appears to accept voluntarily.

The reason we might impose the nondiscrimination requirement is that the monopolist would be able to exercise coercion over the consumer.  The service is valuable and the monopolist might induce the consumer to behave in a certain way in order to receive the service.  This applies not merely to a consumer that pays money, but also to a consumer that “pays” only by viewing advertising.  If the service is sufficiently valuable, then the monopolists can use its power to get the seller to behave in a certain way.  If using Facebook is valuable enough, then one may refrain from saying certain things that will displease Facebook in order to be able to continue to use the service.

The real question is whether these service providers are actually monopolists – a question I hope to address in the near future.

Reader Discussion

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on November 15, 2017 at 11:04:44 am

Mike:

Look forward to the next post. As i was one offering the argument that "no pay - no foul" I was interested in hearing countering arguments.

Let me update something:

Can it not be argued that since Facecrap, etc is collecting private information about it's users, that the payment in relinquishing privacy by the user is sufficient to constitute a "charge"?
One could also apply this to "voice controlled" TV remotes, where, to my astonishment, some cable providers contracts assert the right to subsequently share that information with third parties.

And all this talk about government invasion of privacy when it appears that the populace is all too willing to surrender their privacy so that they may provide the rest of the world with their deep thoughts / amazing videos, etc etc etc!

whudda thunk it? Certainly not Mr. Madison!

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gabe
on November 15, 2017 at 12:42:32 pm

About 9 months ago I wrote a blog post suggesting regulation of Facebook, Twitter, Google, etc., as common carriers.

http://streetwiseprofessor.com/?p=10430

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Craig Pirrong
on November 15, 2017 at 13:47:33 pm

Dear Prof. Rappaport,

As I too, like Mr. Gabe, was raising the "no pay - no way" foundation, let me say, I am beginning to see that there are some crack's in that construction now that you have held a brighter light up behind it, so to speak. Whether they are inconsequential or not, still remains to be seen, in my view.

The old rabbit-ear antenna free-access TV viewing is a good analogy. But, wouldn't that be more likened to the internet service itself, than to the individual Facebook "channel" it self? For instance, even in the days before cable, if one did not agree with or feel their position is given equal airing on CBS, he was still free to turn on ABC (for sake of argument) where it would be aired. Likewise, with paid-cable TV service, if one does not have their position aired on CNN, he can turn on FOX. How is the Facebook network any different?

When Cable first came out, it used to be, the municipality (at least in PA) determined which cable company would be your provider. The individual resident had no choice which cable company to subscribe to. This then was in a sense at least a regional/municipal monopoly for the cable company - akin to a public utility. Under this circumstance, gov't is justified in requiring non-discrimination in broadcasting, at least to the extent of ensuring availability of channels of different contrasting viewpoint for the equal choosing.

"If using Facebook is valuable enough, then one may refrain from saying certain things that will displease Facebook in order to be able to continue to use the service." - still this only means the user will refrain on FB, but this in no way stops him from expressing his views on another internet forum(s).

I have a conservative viewpoint. Is my free-speech infringed upon because CNN reaches more households than FOX (assuming this were the case, for the sake of argument, which I have no knowledge of one way or the other)? In the same way, is my free-speech infringed because FB reaches more users than some other obscure conservative forum with only a fraction of users? Likewise, are my 1st amendment rights infringed because Protestant programming (i.e. 700 Club) is easily and widely available on multiple lower number channels, but I have to search for Catholic programing on EWTN up on 184?

Also, though FB is a free-use forum, it can not be accessed without first "signing up". So it becomes a contractual arrangement between FB and each individual user. If FB determined it to be in their market interest to have a business model that carries only left-wing propaganda, could they not legally make the exclusion of right-wing truth and wisdom a condition of use? And if I agree to this condition, because I want to still have access, have I not legally signed away (waived) my 1st Amendment protections?

But, as I say, there are cracks revealed in my foundation. I too am looking forward to your future posts.

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Paul Binotto
on November 15, 2017 at 14:05:06 pm

You're missing the way you pay for Facebook, etc. You don't pay in money, you pay in personal information which the social media companies then ruthlessly monetize. It is in effect a form of barter. You obtain access to the social network not through a subscription or fee or toll, you obtain access by giving up your valuable private information.

There are evidently gains from trade here, but there is an exchange of value-for-value, just not an exchange involving monetary consideration. The "it's free" defense therefore doesn't fly.

As the expression goes, if it's free, you are the product--or more properly, your information is.

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Craig Pirrong
on November 15, 2017 at 14:19:56 pm

I don't dispute your assertion.

Again - does this change in any way by the fact you, when you "sign-up" for FB that you may be in fact be signing on/agreeing to this exploitation of your personal information as a matter of contract?

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Paul Binotto
on November 15, 2017 at 14:23:30 pm

Paul:

How would signing on for a payment of my privacy (in a sense) be any different than say signing on to pay Facecrap $5 a month. Quite frankly, my privacy is worth a heck of a lot more than $5 - and being a cheapo - this is why I do NOT use any of this childish nonsense.

Anyway, LLB lets me spew forth my idiocies and inanities without either payment of loss of privacy!

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gabe
on November 15, 2017 at 15:05:08 pm

Mr. Gabe,

It likely isn't any different. (One of) The question(s) I raise is, are you entering into a contract with FB by agreeing to their terms of usage which "may" in effect provide "consent" to have your privacy exploited for profit, and your free-speech rights waived/limited? And, if you are, is their contract overly exploitive as to not be enforceable, or is it binding?

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Paul Binotto
on November 15, 2017 at 20:51:58 pm

Let's say a private college (the only college in the poor country) got enough donations every year to provide everyone with free tuition, but they didn't. But then the government called them a monopoly and therefore couldn't discriminate, so then the college started providing everyone with free tuition so they could continue to discriminate.

Is what the college is doing moral?

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South African Native
on November 16, 2017 at 08:42:20 am

This a good analogy. But it would require more development to determine if it is moral or not:

1) "to provide everyone with free tuition, but they didn’t" - does this mean they give some students free tuition and not others, and if so, is the scholarship awarded by need and merit, or lottery? Or, that they could give everyone in the country who wanted a college education free tuition, but only give it to those who qualify by need and merit?

2) By discrimination, does this mean the government views awarding free-tuition by need and merit to be discriminatory, or do they discriminate in some other manner? If it some other form of discrimination (i.e. racial), I would presume the government could still reach the college to prosecute it for racial discrimination even if it conceded to give everyone free-tuition.

3) What if the college had enough donations that it "could" provide everyone with free-tuition, but it thought it better be spent on giving everyone good university hospitals, clean water, good primary & secondary schools in the most impoverished villages, free-libraries? Is this plan less moral?

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Paul Binotto
on November 16, 2017 at 17:57:10 pm

Hadn’t really thought about this before.

Upon reflection, Rappaport persuades me: The fact that a firm does not charge money should not exempt the firm from monopoly regulation. Indeed, one of the classic tests of whether a firm was engaged in monopolizing behavior is whether the firm was engaging in “predatory pricing”—charges rates that are below its incremental costs. Any firm charging nothing would likely flunk that test.

That said, I’m not yet persuaded that a firm should be subject to regulation just because it can induce people to modify their behavior.

Rather, I’d look for some measure of harm. Classical econ analysis would justify regulation if we could determine that an actor’s conduct was systematically leading to suboptimal economic results, and if government intervention could be expected (at least in theory) to produce superior economic results.

So if I flood the market with free food I buy from abroad, I may drive all the grocery stores, and many restaurants, out of business. If, at that point, I elect to stop giving food to Rappaport, well, he’s harmed. But conceptually, he’s not harmed by my refusal to give him free stuff; he’s harmed by the absence of alternative sources of food—an absence that I orchestrated.

To complete the traditional steps of predatory pricing, I WOULD offer food to Rappaport—but at extremely inflated prices. But those high prices need not be denominated in dollars. If I refused to provide food unless he provide me with sexual favors, that would constitute predation, too. (You’ll have to trust me on this one, Rappaport.) Or if I demanded votes for Hillary. Or a religious conversion. Or whatever.

But what if I never do cut off Rappaport’s access to free food? Arguably the mere threat to do so would represent an exploitation of market power.

But what if I never even threaten to cut off Rappaport’s food? Would the mere POSSIBILITY of a threat constitute an exercise of market power? We’re on pretty thin ice here….

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nobody.really
on November 16, 2017 at 17:59:07 pm

p.s. Some of you will be old enough to remember the Yellow Pages. No, they’re not just something that strongmen tear in half to demonstrate their strength, or that crooked cops use to beat suspects into submission without leaving distinctive marks.

Especially in those pre-internet days, the Yellow Pages provided a directory of all local the firms in a given line of work. Private firms would pay obscene sums to have themselves listed under as many headings as the firms could think of—and often pay to have prominent ads inserted as well. Why would firms be willing to pay? Because it got their names and numbers in front of potential customers just at the moment when those customers were looking to buy.

But every customer bitched about the price of those listing and ads. Customers were paying extortion to the Yellow Pages company. And why? Quite logically, other publishers started getting into the Yellow Pages business (although they couldn’t use the name “Yellow Pages”), and this competition drove down prices somewhat.

But observe what happened: We went from a world in which customers could consult one source to obtain the information the customer wanted, to a world with multiple, partial listings of what you wanted. This was arguably a step up for competition--and a step off a cliff for public benefit.

Arguably the better result would have been to declare the Yellow Pages a kind of monopoly, and to simply regulate the rates it could charge. Yellow Pages would retain its standing. Firms would avoid getting bilked by an unregulated monopoly. The public would retain their convenient access to a central clearing house for information, and would avoid the burdens of collecting multiple phone books.

I’m not sure what “market failure” this Yellow Pages example illustrates, but it seemed like a circumstance in which the free market was just making things worse.

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nobody.really
on November 16, 2017 at 20:40:30 pm

"...free market was just making things worse."

Are you kidding me?

Do you know how many campfires I started with the Yellow Pages. Were I still so inclined (or able) how am I going to start my fire with a Dell computer. Geez louise!

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gabe
on November 17, 2017 at 10:47:17 am

You've got a Dell, too?

There's been many a time that I've been sorely tempted to use it as kindling, believe me....

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nobody.really

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